Coinbase’s Legal Chief Criticizes Banks for Thwarting Crypto Charter Application

Coinbase's Chief Legal Officer, Paul Grewal, has publicly criticized traditional banks for their opposition to the crypto exchange’s recent application for a national trust bank charter. He accused these banking groups of valuing their own interests over consumer protection.

Key Takeaways:

Coinbase's legal chief critiques banks for opposing its charter application.
Traditional banks are united against crypto firms obtaining federal licenses.
The debate centers around stablecoins and potential loopholes.
The OCC will take 12-18 months to review Coinbase's application.

Coinbase Exec Slams Banks for Blocking Crypto Charter Bid

This week, resistance from banking associations intensified, with both community banks and Wall Street lobbyists joining forces to prevent crypto companies from obtaining federal banking licenses.

Grewal responded sharply after the Independent Community Bankers of America (ICBA) urged federal regulators to reject Coinbase’s charter application for its subsidiary, the Coinbase National Trust Company.

“Imagine opposing a regulated trust charter because you want crypto to remain… unregulated,” Grewal remarked on X, adding that bank lobbyists are trying to “dig regulatory moats to safeguard their own interests.“

Banking Groups Unite Against Crypto Charter

On November 3, the ICBA submitted a comprehensive letter of opposition to the Office of the Comptroller of the Currency (OCC), arguing that Coinbase’s application does not meet the necessary legal standards for chartering.

The ICBA's letter highlights several fundamental issues with the application, including concerns over governance, profitability, sustainability, and the complexities of managing receivership—especially during periods of declining crypto market performance, when both Coinbase and its subsidiary could face financial challenges.

Furthermore, the ICBA disputes the legal basis of OCC Interpretive Letter 1176. This letter allows national trust banks to perform non-fiduciary roles beyond traditional trust services. The banking group contends that this letter was issued without appropriate public notice and comment procedures, rendering it invalid as a foundation for Coinbase’s application.

In a different arena, another banking lobby arose amid the stablecoin debate.

On November 4, the American Bankers Association, alongside 52 state banking associations, sent a joint letter to the Treasury Department urging strict enforcement of the GENIUS Act, which prohibits interest payments on stablecoins.

This coordinated action aims to address what banks perceive as a “loophole” that lets digital asset platforms bypass the law by offering interest through affiliated entities rather than directly from stablecoin issuers.

Growing Concerns About Stablecoin Interest

Banking associations warn that if the interest ban is interpreted narrowly, digital asset platforms could exploit loopholes by offering high-yield rewards and incentives. This could undermine the intention of the law to keep stablecoins functioning primarily as payment methods rather than as investment alternatives.

Senator Mike Rounds expressed to Politico that the workaround regarding interest payments “resembles an end-run on the original legislation.”

Additionally, Federal Reserve Governor Christopher Waller stated that stablecoins should only serve as payment instruments, not as interest-bearing deposits. “It’s not an investment vehicle. It’s not a time deposit where you’re holding it to earn interest,” he said.

The banking groups further argue that interest-bearing stablecoins could lead to a 25.9% decrease in bank deposits, eliminating around $1.5 trillion in lending power and impacting small businesses and farm credit by $110 billion and $62 billion, respectively.

Community banks, particularly those serving rural and underserved areas, would be disproportionately affected by the outflow of deposits towards yield-generating stablecoins.

In contrast, Coinbase's Chief Policy Officer, Faryar Shirzad, dismissed these banking concerns, stating that the GENIUS Act explicitly allows third-party reward programs and differentiates them from issuer-paid interest.

“Congress has addressed this issue,” Shirzad stated, implying that the banking industry's letter acknowledges this distinction while attempting to revisit established legislative intent.

Review Timeline and Industry Impact

The OCC is anticipated to take 12 to 18 months to review Coinbase's charter application, with public feedback likely influencing the final decision.

The OCC is currently headed by Comptroller Jonathan Gould, a former chief legal officer at Bitfury, who has been critical of traditional banks' hesitance to collaborate with crypto firms.

In addition to Coinbase, similar pushback from the Bank Policy Institute is targeting trust charter applications from companies like Ripple, Circle, and Paxos. Notably, Anchorage Digital stands as the only crypto firm with an approved national trust bank charter, which was granted in January 2021.

Looking ahead, the growing resistance from the traditional banking sector indicates that these institutions view the pursuit of federal charters by crypto firms as a significant challenge to their dominance in custody and payment services.